This restaurant killed tipping...and now it's bringing it back

A growing number of restaurants are getting rid of tipping. But the move didn't go as planned for one owner.

At the start of 2015, Thad Vogler decided to eliminate tips at his two San Francisco restaurants Bar Agricole and Trou Normand and raise prices by 20% to help bridge the pay discrepancy between the tipped staff and the kitchen employees.

The no-tipping policy brought a pay raise to the kitchen staff and servers no longer relied on tips as part of their compensation.

Vogler said the staff seemed on board when he introduced the new policy. But as it played out, the sentiment began to shift among formerly-tipped workers.

"They became more and more disgruntled, and we started to experience turnover," he said. "We were spending a lot of time and energy hiring and training, and rehiring and training."

He estimated he lost about 70% of his tipped staff -- or 30 people -- during the 10 months the policy was in place.

So what went wrong? Vogler said he didn't raise prices enough to compensate for the drop in wages that some of the tipped workers were seeing and also cover other costs.

When tips were allowed, servers at the two restaurants made around $35-$45 an hour, which fell to $20-$35 when gratuity was eliminated.

"Intuitively, you think if they are making $30 an hour instead of $40 they will still be on board, ideologically it's a good idea, but the fact is, they aren't. They are going to go somewhere where they can make even 10% more."

Vogler estimated that he would need to hike menu prices around 40% to cover the raises to the kitchen staff, maintain wages for his servers and thetaxesthat increased due to the compensation shift.

"Unless we raised prices considerably more, we were expecting servers to take a dock in pay; that was an egregious oversight on my part."

The higher wages increased the cost of worker's compensation and payroll taxes.

Even though tipping is back, the menu prices remain at a higher level. "We lowered prices, but not the full 20%, Vogler said. "We are still committed to paying the kitchen more." The kitchen staff is making around 15-25% more than they were before 2015.

While Vogler was backing out of the no-tipping world, another well-known restaurateur was diving in. In mid-October, Danny Meyer, CEO of Union Square Hospitality Group, announced plans to eliminate tipping at 13 of his restaurants.

Vogler said his move to get rid of gratuity might have been more successful if others in the area also made the move.

"We couldn't compete in the market, we were faced with the options of raising prices more or bailing out."